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Cheating and the Record Books

We've made a distinction between how we punish sports cheats and corporate cheats, but we got it all backwards.

"You are a felon, you lose certain rights. He is a broken civil and criminal laws (sic) with willful intent and the only reason he would come clean is to eliminate the sentence."

"If you embezzle from your company, should you still get a gold watch and a pension? Come on man, it's their job, and they broke the rules. Just like any other, you suffer the consequences of being forever tainted."

Those are strong words to be throwing around, and any business drawing that sort of ire would do well to take notice. First, there's the general, angry consensus that forms online. Next, there's an unorganized sort of backlash -- fewer customers, smaller orders, other organizations trying to show that they're better, and so on. If you really screw up, you have to be on the lookout for boycotts, lawsuits, and possibly even a complete shutdown.

If only businesses actually had to worry about such consequences.

The first of those quotes is a comment from a reader on a New York Times article about semi-disgraced bicyclist Lance Armstrong. The second is a comment on an ESPN article about the recent Baseball Hall of Fame fiasco, where many of the "greatest" players of the past two decades were passed over for entry. These athletes' cheating has divided fans, and more and more people are finding themselves on the side of tarring and feathering. Why do we only seem to get so hotheaded when it comes to things that don't matter?

The sports-business divideThe parallels between sports and business are so deeply ingrained that we don't even think about the references we use anymore. Businesses hit home runs, have all-star management teams, and pull off rebounds all the time. But when it comes to sports figures, we're much harsher in our judgments. Lance Armstrong was stripped of his Tour titles, and people ripped off their yellow bracelets in disgust. In 2005, there was a Congressional hearing on doping in baseball. In 1995, President Clinton issued a deadline to try to end a baseball player strike.

With all the attention we pay to sports and all the hyperbole that arises when a cheater is discovered -- or even when there's just a labor dispute -- it's no wonder that the backlash can be so severe. But sports are entertainment at their core. In business, thousands of lives and livelihoods can hang in the balance.

When HSBC(NYSE:HSBC) got hit earlier this year for money-laundering, I didn't hear anything even approaching a consumer consensus on action. Of course, some people called for trillion-dollar fines or CEO jail time, but those are just lip service. How many people went out and shut their accounts -- the corporate equivalent of throwing out a bracelet? Perhaps more importantly, where are the investor cries of foul play? Where is our disgust?

The idle investorOn Dec. 11 last year, HSBC was fined $1.9 billion for money-laundering. Let's be clear on what that means. That means HSBC knowingly helped drug-runners and other criminals hide the source of their cash so that they could keep making money off the terror that has overwhelmed Mexico in the past few years. That same drug-running puts Americans in prison, cops in the hospital, and tax dollars on the border. Since the fine came in, the stock has gone up about 6%. As investors, we have rewarded bad behavior.

Here's another case from last year. In August, Pfizer(NYSE:PFE) was fined for bribing officials and physicians. That put people's well-being at stake while doctors were rewarded for the quantity of their prescriptions -- not the quality. Pfizer's stock has risen 9% since the announcement. Instead of saying, "This is unacceptable. This is cheating, and it's bad for consumers," we've said, "Well done!" We have fallen into the trap of valuing shareholder stakes more than good behavior. For all our sports parallels, we've made no effort to instill business with the morality that is expected of sports.

Last year was a banner year for corporate litigation. The U.S. organization responsible for collecting fines brought in a record $2.7 billion last year. The S&P 500 was up 14% in the same year. We keep coming back to the game, even as we watch the players shoot up on the field.

Fixing the doping problemProfessional athletes still cheat, and they may always cheat. At last year's London Olympics, shot-putters, badminton players, and judo contestants were kicked out for cheating in some way or another. In all, 24 contestants were suspended for doping, and we wrote letters condemning them and told friends at the bar that real competition was dead. Meanwhile, we sat by while companies repeatedly stepped up, divulged their sins, dropped a dollar in the box, and walked out free to go about business as usual.

We have an odd notion that fines for corporate behavior are like speeding tickets. "Oops! We messed that up, but we paid the money, so now it's OK." That's not how it should work. As shareholders, we have power. Hell, most of the offenders are breaking the rules in an effort to create shareholder value; clearly we're a big deal. So let's use that power to actually do something.

Make companies change their culture -- not just their accounting. Get boards to make real reparations when the company does something wrong. Make noise and be heard. As a single, small holder, you might not be able to do it all, but you can sure do something. My general-election vote doesn't matter, statistically, but you'd better believe I still exercise the right. Exercise your rights and fix corporate doping.